IHS Global Insight Perspective | |
Significance | On a seasonally adjusted basis, Brazilian GDP increased 1.9% with respect to the first quarter of 2009; raw data show that real GDP contracted 1.2% year-on-year (y/y) compared to the second quarter of 2009. |
Implications | The Brazilian economy is now officially out of a recession that has been shorter and milder than that of the United States and other developed economies. Private consumption, to a large extent stimulated by government policy, was the main driver of growth while investment remained flat. |
Outlook | The outlook for the Brazilian economy is one of quarter-over-quarter improvement; the rapid recovery experienced in April-June should continue in the second half as industry rebuilds its inventories, and IHS Global Insight forecasts economic growth for the full year 2009 in the -1.0%-to-0% range and positive growth of 4.0%-4.5% in 2010. |
The Brazilian economy has emerged from recession after two consecutive quarters of decline. GDP growth moved into positive territory in April-June and seasonally adjusted data show GDP expanding 1.9% in the second quarter with respect to the previous quarter (q/q). Raw data still reflects a decrease in economic activity as GDP declined 1.2% when compared with the second quarter of 2008.
Private Consumption: The Main Driver of Growth
Private consumption jumped 2.1% quarter-on-quarter (q/q) in April-June, encouraged by government support in the form of tax breaks for consumption of durable goods such as automobiles and appliances and also by the availability of credit lines at relatively low interest rates. Government consumption remained flat in a q/q comparison. As expected, and already signalled by data from the balance of payments, exports (volume) improved from depressed levels posted in the first quarter of the year, when world demand for Brazilian products plummeted, in particular from large economies such as the United States, Europe, and Japan. Brazil's consumption of imported goods improved only slightly and in addition to a still relatively expensive U.S. dollar (compared to the second half of 2008), imported goods were still subject to an inventory adjustment during the second quarter of the year, which is very reasonable bearing in mind expectations of future appreciation of the currency that arose in April-June.
From a supply perspective, industry was the most dynamic sector, growing 2.1% q/q while the service sector also grew relatively fast at 1.2%. Agricultural output was flat in the second quarter of the year.
Fixed Investment Remains Flat
Also known as capital expenditure, fixed investment remained unchanged after falling 12.6% and 9.6% in the previous two quarters. In a yearly comparison, investment fell 17.0% when compared to April-June 2008. The global recession has damaged business sentiment and despite relative optimism from emerging markets, and Brazil in particular, foreign investors have taken a very cautious approach and postponed investment projects. Government efforts to keep the economy afloat have been successful on the consumption side, but despite strong growth in public investment, it was not enough to offset the drop of private capital expenditures.
Outlook and Implications
Rapid growth is also expected for the second half of the year as the aggressive fiscal stimulus coupled with monetary easing by the central bank (i.e. lower interest rates along with higher liquidity and credit availability) will continue to help growth in private consumption as well as public investment. According to the Confederação Nacional da Indústria (National Industry Confederation), business sentiment started to recover in the first quarter of 2009 after plunging in the second half of 2008, and has moved above the "50" threshold, which indicates expansion. Now that the inventory (downward) correction is over and business sentiment is positive, firms should start accelerating the pace of expansion of capital stocks. Labour market indicators are very positive, as the economy appears to be creating jobs after the sharp decline registered in November 2008-January 2009. Data for May-July 2009 shows that the unemployment rates is at the same level as in 2008, and significantly lower than in 2007.
The monetary stimulus will continue to encourage aggregate demand in 2010, but poor external demand will continue to be a constraint; also the fiscal stimulus will be withdrawn next year as the government needs to return to the path of fiscal consolidation (manageable fiscal deficits that guarantee the ability of the government to repay public debt). IHS Global Insight forecasts economic growth for the full year 2009 in the -1.0%-to-0% range, and positive growth of 4.0%-4.5% in 2010.